FOOD SUBSIDIES MUST BENEFIT POOR

The link between food supply and political stability is as old as history. Egyptian pharaohs stored surplus grain as insurance against famine. Mexico's first food policy was enacted in 1525 when the colonial government began regulating urban wheat and maize prices. More recently, the policy of keeping food prices low to offset poverty - and maintain stability - has become popular throughout the Third World.

Higher food prices directly affect the real income of the poor. In Bangladesh and Morocco, 75 percent of the budget of low-income families is spent on food while in India and Indonesia that share is 83 percent.Subsidies, the most common food policy, protect low-income groups from fluctuating food prices. But for countries with growing populations, subsidies carry prohibitive costs. Expenditures on food subsidies increased rapidly in the '70s; slower economic growth and smaller budgets in the '80s mean that a larger share of national income is devoted to subsidies. Many governments find that they are economically unable to maintain subsidies, but politically unable to reduce them.

Since 1981, food-related riots precipitated by reductions in subsidies have occurred in more than a dozen countries, including Sudan, Morocco, Egypt, the Philippines and Brazil.

Policies regulating food prices and wages have been key factors in the process of industrialization. In Zambia, for example, such policies were used to encourage growth in the copper-mining industry. Maize prices for European farmers were set at three times the level of those for native farmers, immediately changing income prospects for the two groups. Discouraged from farming by low prices, large numbers of native farmers sought work in mining towns, where consumer food prices were heavily subsidized.

When copper prices fell dramatically in the '70s so did government

revenues. Neither has recovered. Population growth is straining a diminishing job market and increasing the number of Zambians dependent on low-cost foods. But a budget crisis forced the government to cut maize subsidies, sparking riots in December 1986. Although Zambian President Kenneth Kaunda restored the subsidies, he noted that they would "divert money that Zambia should spend on development of public services."

In many countries, political stability is now determined by the price of bread. Not surprisingly, the need for subsidies is often exacerbated by declining per capita incomes and agricultural production. In Mexico, where real wages have declined by a fifth since 1980, fiscal stringencies have forced the government to eliminate subsidies on tortillas, the cornmeal food staple.

Egypt, whose 50 million people make it the most populous Arab country, also is in a deepening economic crisis that is generating political unrest. One of the most politically sensitive issues in Egypt today is the food subsidy and the growing economic pressures to reduce it. As recently as 1968, Egypt was four-fifths self-sufficient in grain production; in 1986, imports supplied over half the grain consumed at a cost of over $2 billion.

Several factors limit the potential success of food subsidy programs. To meet standards of equity and efficiency, subsidies must directly benefit a target group. In many countries, however, including Egypt, Zambia and Sudan, food subsidies are available to the population at large at high fiscal cost.

How can government simultaneously reduce subsidy burdens and maintain stability? Tailoring strategies to the food needs of a specific population is a good way to start. The World Bank has found that targeted food strategies are more cost-effective and produce fewer disincentives to domestic agriculture.

In the early '70s, the Sri Lankan government discovered that for every extra calorie consumed by the malnourished population under its subsidy program, 13 calories were reaching non-deficit groups. Changing to a targeted food stamp program in 1980 reduced outlays on food distribution from 14 percent to 15 percent of total government expenditures within two years.

Subsidies should be limited to staples that make up a significant share of calories consumed by low-income groups. Subsidizing foods most important to poor people immediately enhances their calorie intake and reduces the share of their disposable income spent on food, but doesn't subsidize higher income groups. In Brazil, for instance, a greater emphasis on rice as opposed to beef subsidies would reduce government expenditures and more adequately address the food needs of the poor.

Reducing subsidies and building food security are not incompatible goals. Undoubtedly, most governments face political pressure to maintain subsidies for a variety of reasons. But the combination of external debts, population pressures, and declining budgets mandate action. Fine-tuning food policies to reach those truly in need is the necessary first step.

For the full story: Log In, Register for Free or Subscribe